Bitcoin Exchanges and Verifying High Volume Trader identities

Bitcoin exchanges are the premier solution for the everyday consumer to buy and sell Bitcoin in exchange for fiat currency. However, it seems like most Bitcoin exchanges are flagging accounts who are trading at higher volumes on a monthly basis. Sometimes, these conversations can lead to some very awkward information being asked from the consumer.

Bitstamp – Providing A Copy of Passport or Birth CertificateBitstamp

Every Bitcoin exchange around the world has to comply with existing legislation and regulations in the region they are operating from. In the case of Bitstamp, the company is compliant with all EU regulations concerning Know-your-Customer and Anti-Money Laundering requirements. After all, Bitcoin exchanges attract quite a lot of money from people looking to buy, sell and trade Bitcoin.

For most traders, the basic verification process is rather straightforward. Bitstamp requires some personal documents, such as a scan of a government-issued ID, and a bank statement or a utility bill to verify the address of residence. Once again, both of these documents are part of the EU regulations regarding money transmitting businesses and is not something Bitstamp can control.

However, once a trader surpasses a certain volume – somewhere between US$1,000 and US$1,500 worth of trading in the past 30 days – additional documentation will be requested by Bitstamp staff. Traders will have to submit either a copy of their international passport or a copy of their birth certificate to further verify their identity.

Even though this is all part of the EU regulations, many customers are less than comfortable providing such sensitive personal information to a third-party Bitcoin exchange. After all, most of these documents will be stored on centralized servers, making them prone to being hacked and personal information being leaked.

Identity theft has been a worrying issue for government officials around the world, especially since the Internet gained mainstream traction. Plenty of online services and platforms require documents to verify user identity, and nearly all of them store those details on centralized servers. A blockchain-based solution would be preferable, but that is a discussion for another day.

Coinbase Asks The Hard Question Regarding Bitcoin Customer IntentionsCoinbase Logo

Popular Bitcoin exchange and wallet provider Coinbase is taking a slightly different route. Once a Coinbase account is flagged for unusually high trading volume, support will send the customer an email in which a few questions need to be answered. Similar to Bitstamp, Coinbase also has regulatory requirements to comply with and finding out the intentions of high volume traders is not as intrusive as asking for a copy of a birth certificate.

Some of the questions asked by Coinbase staff may seem rather strange, even though they leave little room for trying to avoid the question. Additionally, the company offers a DropBox folder with PGP encryption to allow for more secure communication regarding this inquiry. One high-volume Coinbase Bitcoin trader got asked the following questions:

– Describe the primary use for your Coinbase account

– Describe the originating source of your incoming bitcoin transfers

– Detail the specific source(s) of funds for your purchase of bitcoin (e.g. occupation, investment income, etc.)

– Help us understand the nature of your outgoing bitcoin transfers and what service(s)  they are related to.

Clearly, none of these questions is an invasion of user privacy by any means. It has to be said, however, that all of these questions require a proper response and leave no margin for error or half-truths. Failing to come up with satisfactory answers may ultimately lead to the termination of the customer’s Coinbase account.

Source: News Tip via Email

Images courtesy of Bitstamp, Coinbase, and Shutterstock